Monday, February 25, 2008

Dollar Cost Average Your Heating Bill

As I drive by the gas stations along the roads from one day to the next, it seems as if there’s a giant with flash cards representing the minute by minute price. The only strategy I can develop to thwart the price gouging is a form of dollar cost averaging.

That’s right: dollar cost averaging. Consider the common stock market indices like the S&P 500 or the Dow-Jones industrial average. The indexes move up and down in the same way the gasoline and heating oil prices are fluctuating.

One day I realized that the same technique could be applied to gasoline prices. If one day gas prices have jumped five or ten cents and I happen to need gas, I’ll buy only five or ten gallons worth. If there’s a dip of five or ten cents per gal in gas prices, I’ll fill up the tank. The method works even better when buying heating oil where you must buy larger volume quantities. Ten bucks saved on a hundred gallons if the price drops ten cents from day to day, as it has been doing.

My heating oil distributor is not exactly thrilled at having to drive x distance to deliver 160 gals of oil but then the heating oil distributor is not giving me the fuel for free, either.

Meanwhile, there are some things to consider about the oil-energy crisis.

• Oil spot prices are reflective hot demand (today 101 bbl) from industrial newcomers like China and India and from the U.S. which uses a quarter of the energy produced around the world.

• In spite of the high prices at the pump, gasoline prices are at their highest inventories in years, believe it or not.

• The actual price of gasoline is not as high as it was at various times in the past decades after adjustment for inflation.

• Overall, people have accepted $3.00 per hour gasoline and fuel oil prices. Experts estimate that it will take $5.00 per gal gasoline to see a reduction in U.S. demand and driving.


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